EQTIX: The Dual-Approach Investors Needed Yesterday
Investors seeking relatively less risk compared to pure equity investments and the opportunity for cash flows may gravitate toward covered calls strategies.
The popularity of covered-call strategies is surging, with assets in the category (mutual funds and ETFs) growing from $53.6 billion last year to over $84.6 billion in March—an incredible leap from just $5.1 billion a decade ago, according to Morningstar.
This rapid expansion reflects a growing investor interest in strategies that combine equity exposure with cash flow generation through derivatives. When market volatility is higher, covered call strategies tend to perform better.
The Shelton Equity Income Fund (EQTIX) sells calls on individual stocks. Morningstar recently awarded the fund an overall 5-Star Rating and Gold Medal recognition as of 9/30/24 among 77 Derivative Income funds —one of many solutions shining a floodlight on this category.* EQTIX has also achieved a Morningstar TTM Yield of 8.61%.
Options Strategy: The Covered Call
Imagine you own shares of a company and believe the stock price will stay about the same or go up a little. You decide to “rent out” your shares by selling a covered call, giving someone else the option to buy your shares at a set price (the “strike price”) by a certain date, and they pay you for that right.
While a covered call strategy doesn’t protect against drops in stock prices, it may somewhat offset or mitigate the investment losses of a portfolio as a whole by the amount of the premium you receive. This may offer a limited hedge against moderate declines, depending on the success of the options component of the strategy.
Why Choose EQTIX?
A covered call strategy that helps with both risk management and cash flow generation may be suitable for many investors.
Covered call funds may have lower volatility than an all-equity portfolio while generating some cash flow like a fixed income investment. For the growing number of sophisticated investors and advisors in search of a strategy that can provide growth and cash flow, a covered call strategy might just be the right investment for increased portfolio diversification.
Dive deeper into EQTIX’s potential here: Shelton Equity Income Fund.
Important Information
Investors should consider a fund’s investment objectives, risks, charges, and expenses carefully before investing. The prospectus contains this and other information about the fund. To obtain a prospectus, visit www.sheltoncap.com or call (800) 955-9988. A prospectus should be read carefully before investing.
It is possible to lose money by investing in a fund. Past performance does not guarantee future results. Any projections or other forward-looking statements regarding future events or performance of markets, companies, or otherwise are not necessarily indicative or differ from, actual events or results.
Options involve risk and are not suitable for everyone. Prior to buying or selling an option, your client must receive a copy of CHARACTERISTICS AND RISKS OF STANDARDIZED OPTIONS.
Investments in derivatives may be risker than other types of investments. They may be more sensitive to changes in economic or market conditions than other types of investments. Many derivatives create leverage, which could lead to greater volatility and losses that significantly exceed the original investment. Positions in equity options can reduce equity market risk, but can limit the opportunity to profit from an increase in the market value of stocks in exchange for upfront cash as the time of selling the call option. Unusual market conditions or the lack of a ready market for any particular option at a specific time may reduce the effectiveness of option strategies and could result in losses. Investors can lose premium paid to purchase the option if it is not exercised.
Fund information is not intended to represent future portfolio composition. Portfolio holdings are subject to change and should not be considered a recommendation to buy individual securities. The Fund is subject to several risks, any of which could cause the Fund to lose money. These risks, which are described more fully in the prospectus, include stock market risk, economic and political events risks, sector risks, large and medium sized company risks and value investing risks.
©2024 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Important Information for Morningstar® Rating. The fund’s Morningstar three-, five-, ten-year ratings respectively, 5 stars, 5 stars, 5 stars among 77, 67, 37 funds.
*Shelton Equity Income Fund (EQTIX) received an Overall Morningstar RatingTM of 5 stars among 77 Derivative Income funds, based on risk-adjusted returns, as of 9/30/2024.The fund’s Morningstar three-, five-, ten-year ratings respectively, 5 stars, 5 stars, 5 stars among 77, 67, 37 funds. Morningstar Medalist Rating Methodology
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